Lessons from the Tax Court: Travel deduction hits a sour note

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in Small Business Tax,Small Business Tax Deduction Strategies

It is well established that you can deduct travel expenses that are “ordinary and necessary” to the conduct of your business and directly attributable to the business. If you travel somewhere and engage in business and personal activities, any travel expenses to and from the destination are deductible only if the trip is related primarily to your business.

As a general rule, you must show that you’ve spent more than half of the time on business activities. A taxpayer in a new case failed to produce the necessary records.

Facts: The taxpayer, who was a part-time musician, claimed business travel deductions of almost $10,000 in 2006. To support the travel deductions, he provided a printout from financial software and some receipts for airfare, rental cars and hotels.

The business travel purportedly included seven trips to Philadelphia and Los Angeles that the taxpayer claimed were made for studio recordings. His spouse accompanied him on those trips. However, the sparse records indicated that the taxpayer spent most of his time in the studio on only one of the trips. The Tax Court said it would have allowed a deduction for that particular trip, but the taxpayer failed to meet the substantiation requirements.

End result: The entire business travel deduction was disallowed. (Westerman, TC Memo 201-24)

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